← Unemployable with Jeff Dudan
Unemployable with Jeff Dudan
From Microsoft to $700 Million In Real Estate | Feras Moussa’s Syndication Journey #205
01:07:01
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- [00:00]
A
Hey everybody, welcome back. This is Jeff Duden and we are on the Unemployable podcast. If you started out pursuing a career in medicine, but saw a different future in technology, pursuing a career at Microsoft and leaving to build tech for the real estate industry and loved real estate so much that you built a 175 person multifamily syndication firm named Disrupt Equity with over $700 million in assets under management. Your name can only Faris Musa, welcome.
- [00:35]
B
Thanks for having me, Jeff. Excited to be here.
- [00:40]
A
Yeah, yeah. I tell you what, the more research I've done about you, the more I realize how much there is about you. So I'm excited to dig in today. And you know, our group is entrepreneurs, sometimes smaller entrepreneurs and I work with these people on their wealth building. So in addition to the 2 to 5 million dollars business that maybe a small independent business would have or a franchisee might have, what do they need to be doing to build wealth, diversified, stable, long term growth wealth inside of their portfolio? Because a lot of these people are first time business owners. So my question to you is, can anyone make money in real estate?
- [01:20]
B
Yeah, I mean it's, I tell people I like real estate because the things that I'm good at, systems, numbers people.
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C
Right.
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B
If you're comfortable with those three things, real estate is kind of a very straightforward way to do it.
- [01:31]
A
So are you an accidental real estate mogul?
- [01:36]
B
So it's funny. So, you know, you kind of alluded to being, trying to go down the being a doctor path and then switching into computer science. And for me, high school, I had my own web company, so I made it, you know, but going back to being an entrepreneur, that's where I ground my teeth, learned the basics of it all. And you know, from playing games and making money on that to then developing websites way back in the early Internet boom. And you know, went down wanting to be a doctor. And I realized that sucks, right? It's not, you know, just, it's all memorization. I'm more of a problem solving guy. Switched the computer science natural fit for me and I was already had a leg up on everybody else. And basically then, you know, kind of the Microsoft internship kind of was accidental.
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C
Right.
- [02:14]
B
So speaking of accidents that I didn't really, I was always going to go back and do my own thing like I was doing before. So the internship happened. I'm like, all right, let me go full time for a few years, right? They gave me an offer before my last year of school and I'm like, put that on my Resume and then leave to do my own thing. And so went to Microsoft, left to do my own thing, built the software company, which is kind of the natural next step. And so to your question, accidental real estate investor, the answer is not really accidental investor, where I intentionally went and bought real estate to invest in what the accidental was actually making the jump from software into a full fledged real estate firm. So coincidentally, my first piece of real estate ever bought was a fourplex just about four miles that way.
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C
Right.
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B
Bought that, learned about what it looks like to have multifamily, not just single houses, and then bought a large portfolio from there and then realized it doesn't scale. And from then that I was basically, let's do something larger, has a little bit more scale to it, and got into apartments and the rest is history.
- [03:11]
A
I believe your executive team is across Houston and Dallas. Where do you sit?
- [03:15]
B
Yeah, so I'm based in Houston, Texas, so. And right in the heart of the energy corridor, and that's the Galleria, and downtown's back here somewhere.
- [03:22]
A
There it is. Did you have any early mentors or family members that were entrepreneurs?
- [03:28]
B
You know, I get asked that a lot. No, I mean, you know, my dad, the doctor was never really an entrepreneur.
- [03:35]
C
Right.
- [03:35]
B
I mean, even I still remember multiple times where I bought the piece of real estate. And I bought, I think I did four closings in six months. Right. So I went from never owning any real estate, even whenever I was in Seattle, I didn't buy anything to doing that. And I remember my dad, hey, slow down, slow down.
- [03:49]
C
Right?
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B
Like, just kind of there's a nervousness that he has. And so I never really had anybody. And I think for me, it was just I was the kind of person that always liked to learn new things and knew I can do anything I want to do. And so just kind of pushed me to go and get educated and hop in and figure it out. And I tell people all the time, right? Like, you got to avoid analysis paralysis.
- [04:09]
C
Right.
- [04:09]
B
Jeff, I'm sure you meet a lot of these people, too, that overthink everything. And I tell people, entrepreneurship is about knowing enough to be dangerous and trusting you can solve things that come up and then hop in and figure it out. Yeah.
- [04:24]
A
It must have been a leadership lesson for you, growing a company this fast. I know that you've been rewarded and you've gotten. You were a finalist in the Ernst and Young Entrepreneur of the year award in 2024. Best bosses most admired CEO and the number 174 on the Inc. 5000's fastest growing private companies list. So I can only imagine the. The bends that you went through as you're staffing this company up through the massive growth. What, what lessons have you learned or what tools have you developed for leadership of your team?
- [04:58]
B
Yeah. So, you know, a. I just remember, I remember registering the domain Disrupt equity.
- [05:04]
C
Right.
- [05:05]
B
Way back when, had no idea what it was going to be. In my mind, it's going to be a few, you know, investments, call it a day. And it's been a wild ride. And I mean, the biggest thing. You hear this a lot, it's about the people, right?
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A
Right.
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B
But it really is about the people. And the hardest thing, me and I have a partner for us to do is to just step back, let people make their own mistakes, let people go forward. And I think the biggest thing we've learned, and there's a phrase that I heard that I believe in so much now, which is micromanage the hiring process so you don't have to micromanage the employee.
- [05:34]
C
Right.
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B
So, I mean, I made a very conscious decision four years ago that anybody in the corporate office I'm interviewing doesn't matter how far removed they are away from me in terms of what they're working on, etc. It's about managing and maintaining that culture and having the right people. And so, and I think over the past maybe year and a half, we've gotten much stronger as a company because we've been a lot more intentional about the people we have and really being focused on who's doing what and do we have the right person in the right seat. So the thing I've told friends that are kind of in that hyper growth mode is one of the best investments we made early on was bringing a recruiter in house. She's just in house. You no longer have that fear of, well, if this isn't the right person and I make the change there. Now I got to go find someone, I got to go interview that. That's a lot of work and it is a lot of work still. But having someone that knows the company that's doing that Frontline advance can keep those resumes flowing and trying to find the best of the best.
- [06:27]
C
So.
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A
So some people use the Disc or Colby or Strength Finders or Culture Index or some of these other tools. Do you guys have one that you like and that you've adopted?
- [06:38]
B
No. So, you know, we. So as a company, we use eos.
- [06:41]
C
Right.
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B
And we have an EOS coach that comes in each quarter. And coincidentally, it's actually next Week, he'll be here. You know, we fly him in from the Pacific Northwest. And as part of that, he does Colby assessments for everybody and in the leadership and kind of two levels down. And so we do that in house for existing people. We do not do something where we do a screen on everybody outside. We've considered doing predictive index, which is the one I've heard a lot of really good things about, but, you know, to date, we didn't. We have not standardized that, but it's definitely something I'm considering. And it's. You know, in the end, though, what I've learned is, and maybe this is kind of counter to what the philosophy of those things are, it's that someone can look great on paper, someone can look great in an email interview, but it's like, you know, it's all about how they get going. And so you have to. The phrase hire fast, fire faster is valuable.
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C
Right.
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B
Because you just don't know how someone's going to perform until they're kind of through the door and, you know, past the gauntlet.
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A
Yeah. Are there any, like, killer questions that you have for interviewees or, like, what are you hunting for? Like, I know what I'm looking for. I'm looking for evidence of them being an athlete. I'm looking. And what I mean by that is, do they train? Are they. Are they gonna. Are they gonna seek a book? Are they gonna seek something out that's gonna help them solve their own problem? I'm looking for people that are curious, and they're not. They're not looking to be given a list. They're just looking to be given a problem to solve and a direction, and they get excited about their ability to do it. And it's. To me, it's. It's literally black and white, like you. Some people want to come in and they want to check the box, and the problem is, if that's what they want to do, then they just stop. They literally just stop when the project's over or the task.
- [08:27]
B
9 to 5, clock in, clock out.
- [08:29]
A
And you know what? And that's. That's fine, but, like. And I'm not asking people to work around the clock or anything, but what I'm asking people to do is simply, like, I had a coach, he used to play linebacker in the Giants organization. I don't know if you ever got on the NFL field, but he would say, the first rule of football is pay attention. Right. I want people that will pay attention. I want people that, like, you know, things are flying by them, and they're completely related to what they're touching. But they're just, well, you didn't tell me to do that. And I'm like, well, I mean, so, like, you can just like the great players make great plays in big games. You. We looking for people that want to make a play. They're looking for people that show up and like, they're, they're ready, you know, and what's training in a business sense? Like, they've read something, they watched a podcast, they thought about something. It's those little intangibles that make champions. And you know, and it's, it's hard to, like, you can. And if you ask the right questions about what people have done, you can, you can find those, Those clues of initiative that somebody took, that will. That will indicate that they are. This is somebody that is like, they are excited about life. And whatever they're going to do, they're going to do it. And now if, if now, a lot of times you have to create an upward path for those people. You got to be able to pay them more, you got to be able to give them opportunities. You have to be able to promote them and, and, or, or they'll leave. But, you know, like, that's fine because at the end of the day, the, the moot that what people will give you if they're, if they're operating like that while they're there will outstrip, you know, three or four people that are just looking to check a box.
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B
Yeah. So great question. There's a lot to unpack in that, so I'm gonna try to see if I can hit all the sides of that.
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C
Right.
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B
First and foremost, I mean, what you're looking for is what we call core value number one, right? Gsd, which we call it get shit done. And, you know, HR has their. Get stuff done. You know, we have it on the wall, but that's core value number one. And it's, you know, and I tell people it' knowing everything. It's not about doing everything right. It's about owning things and driving them to completion. So, Jeff, if you need something from me and you didn't get it, it's your fault. Actually, it's not my fault. Like, yeah, maybe you asked me once, but you probably had 10 other ways to get that thing from me, right? And so that's the difference between a person that's checking a box while I ask Ferris for that thing versus a person that shows up in the office and just sits in here. So I'm not leaving until I get my answer.
- [10:53]
C
Right.
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B
Like, there's a difference in initiative between those two things. And the hardest thing to find is those people. And, you know, for us, it's core value number one. So back to your question about what do I ask in interviews? I mean, one of the things I do is I go through our core values and I kind of stress here, like, what we're looking for these five things. If you're not a fit for these five things, we'll know pretty quickly and, you know, you'll be wasting your time. So let's talk about that.
- [11:14]
C
Right?
- [11:15]
B
That's one of them. And really trying to find people that, you know, I tell people mistakes happen. I don't get mad at. I genuinely don't get mad at mistakes. They're frustrating. But that's different between getting mad at a person.
- [11:26]
C
Right, right.
- [11:27]
B
And it's about not making the same mistake twice. But more importantly, here's the mistake, but here's a solution and how we're going to be better versus we make the mistake three weeks later. The same thing happens three weeks later. We haven't decided a new process, a new way to solve it. That's a problem. So I want people that are going to take pride and ownership in their. What they're doing. And so during interviews, I fish around, I try to, you know, I don't ask any of this the standard crap that people ask for.
- [11:51]
C
Right.
- [11:52]
B
I try to just really drill into something very specific. You know, if it's something on the resume, something they said to just kind of really starting to think about, how do they strategize? Right. I'm looking for people that, you know, there's a little bit of a strategy component to what they do.
- [12:05]
C
Right.
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B
If someone tells you, well, I won some, you know, number one prize for coolest robot. Well, let's drag in there, like, well, really. Well, what did that mean? What did you build? What was the problem? Where do you face. How did you find out about this event?
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C
Right.
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B
Like, all these things to just figure out, has it all been put on a silver platter?
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A
How about this? Did you. How about this one? Did you cheat? Yeah, I mean, were you conforming or did you cheat? I used to have the grape question, which was, you're at the grocery store, will you eat a grape even though you're not paying for it, to test it to see if they're good before you buy them?
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B
That's absolutely right.
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A
But I mean, like, is there a wrong? Well, yeah, I would try one. I Want to know if it's good or. Well, no, because I don't belong. It doesn't belong to me. I mean like there's any number and I don't know what answer I was looking for there, but I wanted to see how they thought it through.
- [12:58]
B
Yeah, and that was funny. So one of the, you know, in tech, right, there used to be a little bit more of a bad rep because they'd ask interview questions that weren't necessarily programmatic or anything like that. And I remember one of the interview questions I got asked at Microsoft whenever I did the on site interview, right, Was hey, you know, if I gave you, I think it was a cake. It's like, hey, I have a cake. How are all the different ways I can split it equally between two people, right? Very simple concept. But they really want to see. Are you considering all factors? Well, does the cake have strawberries on it? If the strawberries aren't equally split up, how do you separate those? What about different types of icing, different things? I mean, what are the complicated ways to solve it? What are the simple ways to solve it? And you're really looking at somebody that's going to reason. So back to the grape example. Like, sure, eating the grape. The whole thing is very simple, okay, is it theft? Is it not? But then it gets a little bit more, well, is it already priced in and expected by the company? Is it not?
- [13:52]
C
Right?
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B
All you know, is there an ethical dilemma? There's things to people don't need to think about. And well, how about this?
- [13:56]
A
Is it, is it? No, I wouldn't eat it because it's dirty. Yeah, that's, that's another answer. Like you would be surprised how many answer you get.
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B
But anyway, sorry, no, no, I mean, so and so those are the things, you know. And another simple one that I always like to ask too is what about some of your hobbies, right? And you know, you can tell a lot about a person if they can actually answer that question, right, like thoroughly or not. And so like for me, I like to say I'm always curious. I love to learn new things, you know, and I've done from sailing to mountain climbing to flying airplanes, all these things, right? And not to use me as the example, but it just shows, okay, there's mental curiosity. And so I look for that in people. And I've had the person that tells me, I swear, I kid you not. And I gave them this advice afterwards. It was a younger person who says, oh, I like to just get drunk and hang out with My friends on the weekends, like, golly, could you not pick a worse answer? And I've heard that twice from the younger generation. I'm like, are they just that naive to the world? Right? And, you know, you're looking for somebody that ultimately a person that can have good activities, whatever that is, right? And maybe, like. Like to read a book. I mean, maybe you do something, whatever it is, but at least you have your life organized enough to be able to have those things. Then that means, hopefully you have a general structure in your life and you can be effective in a company. Right?
- [15:17]
A
You want to know the worst answer I ever got to that question about what you do outside of work? I like to study medieval Icelandic child slavery.
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B
Hey, they have various. Is that a bad answer? Is that a good answer?
- [15:31]
C
Right?
- [15:32]
B
That's like the grape question. Now you got to peel it in and understand for what reason, right?
- [15:36]
A
In the. In the context of the interview and all of the other clues, it was a bad answer. Yeah, that was like the final. That was the final answer that ended the interview. I was like, you know what? This is great.
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B
You know how you save that?
- [15:51]
C
Right?
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B
So, you know, I'd give you that answer, then afterwards say, no, I'm kidding. But I like to just give people really crazy answers, see their facial reactions as part of the hobby, right?
- [15:58]
A
That's not where he was.
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B
And so, no, just people say things and, you know, again, that's where I. I try to. I like to say I'm looking not at the expertise in the role. Like, if it's a. Let's say we're hiring someone that's a controller. Like, I'm not drilling into do, you know, accounting. That's not my job. I'm looking for things around the edges, right? Are they a culture fit? Do they have the drive? Do they match the kind of the core values that we're looking for?
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C
Right.
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B
And ultimately, you know, try to both give the team confidence that, hey, I'm also accepting of this person. And at the same time, actually, I flip it around. I try to get the person motivated and just sell them more on what we're trying to do as a company. And you know, what I find is a lot of the leadership doesn't do the selling part, right? And so that's where I'm trying to be the cheerleader and see if it's a fit.
- [16:47]
A
How important is it for somebody on the leadership team to cast the vision for what the company's up to, what the core essence of it is, what it looks like? When we all win. Okay, we're going to be $2 million assets under management. We're in five markets now, we want to be in 10. We want to, you know, we want to take our software and we want to syndicate it out to other syndicate like all, you know, there's some bold vision that probably gets discussed in the leadership room. How do you and I call that? Like on the mug, you know, you have to speak a bold future into existence. And I think it's the leaders and generally only the leader's job to do that and to do it a thousand times. So how do you articulate that in the interview process and what reaction do you look for?
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B
Yeah, so I kind of, initially I thought your question was more about just even within the company.
- [17:39]
C
Right.
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B
Interviews aside. But like how do you do that? Let's talk about that first, then we can talk about how do you trickle it up to interviews?
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C
Right.
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B
And it's something that we used to not do.
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C
Right.
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B
I have a 50, 50 partner and we, me and him all the time strategize, talk about what's going on. But we weren't good initially. I mean, hey, we didn't have a leadership that, you know, we were the leadership. So as the company grew, we started to get a leadership that we call the leadership. So we started to communicate to them. But then you still had the rest of the company, right. And they didn't have that visibility. And one of the things EOS really forced us to do is start to define what are, what is our ten year goal, what's our five year goal, what's our three year goal. Right. Really getting a little bit more crystallization around the vision. And then the other side of that too was really, you know, one thing we've been doing for probably three years now or maybe, maybe a little bit more. I host a monthly town hall every single month.
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C
Right.
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B
Because the problem we have, especially on the management company, it's really a bunch of satellite offices that are five person offices. So how do you create culture in that example?
- [18:40]
C
Right.
- [18:40]
B
Yes, we do holiday party, other bigger things, company wide, you know, annually to bring everybody together. But the town hall, something that simple that a lot of people that are growing don't think about is so valuable.
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C
Right.
- [18:53]
B
So we do a monthly town hall every single month. We recognize people, we talk about what's going on, the company give a little bit of strategy. But then more importantly, once a quarter, right. We do just kind of like a quarterly. I take one of those town halls to do them as a Quarterly review where we say, hey, here's our goals for this next quarter and here's how we performed last quarter relative to the goals. And we like I remember I did this, I think was two weeks ago. We missed this, we hit this, we hit this. We're on track for this, right. People can, across the company can at least get direction because what you don't want to have, and I think a lot of companies suffer from this, is there's no rudder, right. And so you don't have people kind of heading the right direction. And it's not about everything being perfect, but at least people are going in the right direction.
- [19:37]
A
Yeah.
- [19:37]
B
Trying to solve things and they start to understand why we're making some of these decisions or you know, what decisions do we still need to make, right. Or why are we stressing about one thing versus not the other?
- [19:48]
C
Right.
- [19:49]
B
So that has been super valuable as a company. And then I think to bring it back home to your question, right. That trickles into the interview, right. You don't share as much of the, you know, the more, what's the word, the more private information to public, you know, outside. But you are still selling people that need to join the company, right. Like the best hire somebody that you actually needed to sell to get them excited, right. Or they're already excited. You know, someone that's excited about the company maybe didn't need to sell, but someone that's genuinely excited versus oh, they're just, hey, I, I moved and I need to find a new job. Like that's not great. I want someone that's genuinely excited, right. Someone that, I mean, I'll give you example. We've recently, we had, we just finished our internship program. We had awesome interns, right. And you know, we're giving full time offers to several of them and like they're shocked to get an offer. They're so excited, they're wanting to come in. You know, people that are telling their friends about it. Like you want people that genuinely are excited to join and to the point where they're in a different part of the company and they, they're excited to join because they're hoping to get to work on the acquisition side or vice versa, right. Those are the best people and those are the people I try to go out there and solicit for. And the company needs that leadership, that direction to get people excited about those things.
- [20:57]
A
Well, two, two points. Number one, the right kind of people have a history of winning and they want to be on a winning team. So if you can you don't have to tell them the. How the sausage is made, but you can just say, this is where we were. This is what we've done. This is where we are, and this is where we're going, and this is how we're winning and who we're winning against and what winning looks like. And people will be like, okay, I. You know, I'm. I want to be on that team, because that team clearly is up to something and going somewhere. I think the other point is making decisions internally. Your p. Your best. People can't make the right decisions in the. When there's incomplete or misinformation out there about what you're actually trying to accomplish. So, you know, if you want people to make great plays, the. They have to first have an understanding of what is the intent of what we're even doing, and. And then, you know, it's easier for people to get alignment against some sort of a clear future. Now, that doesn't. That doesn't. You can't abdicate the ability to give them details and tools and insights and data with which to make those decisions and to make that progress, because that's. That matters as well. But they actually. You have to. You know, you have to like a meerkat. You got to be able to pick your head up out of the hole once in a while and say, are we even going in the right direction here? And, you know, they pick their head up and they look at everybody else that's picking their head up, and they're like, it's over there, right? Oh, yeah, it's over there. So that's where we're going. And that's what Meerkat Manor looks like on Discovery Channel. But. And in. In the cube. Cube. Human equivalent of Meerkat Manor, but. Well, that's awesome. That's. That's insightful. I really, you know, as I. As I was listening to you on other podcasts and doing my research, it was evident to me that in addition to tech, in addition to some vision and really a deep expertise in what you're doing, that there was a strong leadership component to your success.
- [22:55]
B
Thank you. Appreciate that. It's something. Work on all the time. And, you know, one of the things, too, that I think we kind of uncovered in. As part of Eos and Colby. Right. Is that I'm. I have the unique skill set because I have the visionary component, but I'm also pretty good integrator. Right, Right. And. But we realized, like, the company, as it's growing, I need to be more on the visionary side, and I'll give you, there's, you know, there's. There's an exact example that came up in one of our quarterlies, which is, you know, the team is struggling to solve something, and it's something that I haven't been as involved in. I don't have the time, but I'm the idea guy. I'm the one that can say, hey, here's 30 ways to solve it. You guys go figure out which one. But let me give them the 30.
- [23:33]
C
Right?
- [23:33]
B
And just trying to be better about those things. And, you know, it's important and you're constantly evolving as a leader. And I think a good leader, there's a phrase that I really like which is, you know, a good leader's job is not to create followers, it's create more leaders. And I drill that in my head all the time and really try to set people up for success, step back and let them go forward, and then constantly try to just plant more seeds to keep them pushing forward.
- [24:00]
A
What's a typical deal look like for Disrupt Equity.
- [24:05]
B
On the multifamily acquisition side?
- [24:06]
A
Yes.
- [24:07]
C
Yeah.
- [24:07]
B
I mean, typical deal, we're looking at stuff throughout Sunbelt, primarily. Right now we're focused on Texas and Georgia and, you know, we're looking at stuff that's our focus now is really 80s to 2010 construction, right? It has some sort of value add component. Stuff that's basically kind of reached, not end of life, but it's a point where it needs to refresh, right. Go in and make it nicer. And so we're looking at those types of opportunities. And right now, when we closed the deal last week and literally the broker texted me, he's like, man, I'm so impressed with you guys. You guys are the only ones really buying this year, right? And I think opportunities are abound and we're looking for situations where a seller is more distressed. They need to make a sale.
- [24:47]
C
Right.
- [24:47]
B
The deal we closed last week, literally they had a maturity, right? And you know, we had drama because we needed to push it out a few days and he had a lender maturity. And so ultimately we're looking for deals that we can go and double people's money in five to seven years, right. And we're really looking at not going in as highly levered as we had been previously.
- [25:06]
C
Right.
- [25:06]
B
You know, we've been navigating the high interest rate environment. It's tough out there, right? There's a lot of people that have just collapsed. And, you know, thankfully we built a Company, we have a team, we have a leadership, and you go in and as people say, and I really like this phrase too, you're either part of the problem, part of the solution, right? So if you're part of the solution, you're going in finding ways to solve things moving forward. Our lenders appreciate that. And we're the first people lenders ask take a look at their own deals, right? They're like, hey, we're foreclosing on this deal in this market. Do you guys want to take a look at it? Maybe we'll buy it at the Note. And fortunately, most of those deals don't even make sense at the note. So then I'm going back to the lender. I'm saying, yeah, I'll buy it at the note if you give me a 0% interest rate for three years. And I, you know, let it grow from there. And so ultimately, you know, we're looking at stuff that's not as distressed as we had been. We've done the deep value add where we took it down to 30% occupancy and cleaned out all of the roughness and bad actors and then stabilized. We've done those. Right now we're not looking at much of those. Right. We're looking more instead at deals that the capital structure is just kind of screwed up and we need to kind of restructure it.
- [26:11]
A
You've developed a methodology not to just look at two deals a week or something like that, but literally look at thousands of deals a year. What does your underwriting process look like and how do you accomplish that?
- [26:24]
B
Yeah, so we've kind of some of our, I think what's allowed us to scale.
- [26:29]
C
Right.
- [26:29]
B
You know, early on I got into this business and I realized that it's the secret is not about using, creating brand new software in an old industry like real estate. It's actually just use the stuff that's already on the shelf, tie together to just make us a lot more efficient and effective than everybody else.
- [26:43]
C
Right.
- [26:43]
B
And you know, the deal pipeline is kind of what you're referring to. And that's one of the many things that we have. And we're probably like V4 of that thing, right? They're all very different. And, and I tell people it's about tracking things and being organized and getting some KPIs. The very first version of RTL pipeline was literally a. I remember a Trello Kanban where I track deals and move them through different stages.
- [27:07]
C
Right.
- [27:08]
B
Very first version. But I'd expose out the key fields that matter, number of units, location, all that stuff. And I'd start to track pricing and all the feedback I'm getting, right? And as part of that, we underwrite each of them. And we'd know, hey, last week we brought 10 deals into the pipeline. We underwrote three of them. We offered on one of them. And starting to get that cadence. Then if you start to get that level of cadence, well, then you can start to break out pieces of it, saying, you know, jeff, I want you to own this column. Anything that goes into this column, you're doing that next step. Or maybe we need to break it down into two steps. One step can be just loading the data. One step could be underwriting the data. One step could be putting together Lois. And so you start to be able to break a complex problem into all of its pieces, and then you can have different people that own that. And so for us, I mean, we've iterated on that multiple times, but in the end, it's. It's very simple. Deals come in, they get, you know, underwritten, and deals go out. And what has been valuable is to show that to people to the point where brokers will literally call me for market data, because they all have their own list that they try to capture what's going on in the market. But a, you know, we see a lot of stuff. You know, one broker is one brokerage. They're typically struggling to try to get data from other brokerages, whereas we see it across multiple brokerages. And our stuff is just much better organized. So it's almost become our own little database of all this data that brokers will call and say, hey, what happened here? What did you see there? And it becomes a way for me to add value for them in that relationship. And so it's really doing that, right? And so for us, we have multiple VAs that do. There's a lot of it that's data entry. There's a lot of it that's just financial modeling. And then there's a lot of it that's just gut feel, right? And so if I can get somebody that does a lot of the data entry, that does the financial modeling, and then they're trying to make a decision, yay or nay. Then the gut feel part, which is like me and my partner just looking it over, that's the part where we can do those quickly, right? Because I tell people something, things can underwrite often. But I'm like, it still has to make sense price per pound. And so if the deal is just so priced out of the market, even though it looks like it should be able to make money, that's not a deal that we're interested in. We don't want to be the best nor the worst.
- [29:14]
C
Right.
- [29:15]
B
We want to be able to have options where if we want to go to exit, we're not the most expensive deal in the market.
- [29:19]
A
Right. Do you have a close rate versus offers that you make, that aspiration you look for or just like it's, you know, if it's a deal, you make an offer, you want it at that price and whatever comes, comes.
- [29:33]
B
Yeah, we'll make offer on most deals that we know because again, we've got to the point where we have. We know the brokers well enough that we know if it's worth, you know, us making an offer. Right. You know, we used to, I tell people, always offer because you lose nothing. It's just an email. Deals come back from that. And so we still believe in that philosophy, but usually we just know early on if there's other competition or not. And, you know, the ratio really varies because it depends on what kind of deals we're looking at. Right. As a company, as things shift in the market, we shift strategy. And so there's times where, you know, we know that right now we have a lot of people that come to us wanting us to step in with rescue capital and their deals. And 99% of those don't make sense. They're like worth less than the note. And if we step into their deal with new equity, that means we're still sitting after the senior, which is already underwater. So those situations, we don't hit a lot. But back whenever it was really competitive, we did have a much better sense of that because we were having to offer on everything. And most things we weren't winning. And it really is 1 out of 100 that you maybe hit. So, yeah.
- [30:34]
A
So you just got to keep swinging.
- [30:36]
B
Always keep swinging.
- [30:37]
C
Right.
- [30:37]
B
You never. You have to go to bat to maybe hit a home run.
- [30:40]
C
Right.
- [30:40]
B
And that's the thing I tell people. It's it, you know, there's always a deal out there to be had. And I tell my investors this too. Like, my job is not to get you the best deal in the world. It's to find the best deal available in the market right now.
- [30:56]
A
Never, never compromise on your goals. Just increase your actions.
- [31:00]
B
Yeah. So it's. And a lot of people, I mean, you see that right now, right? With more. It's tough out there and a lot of people have fizzled away a Lot of people that you don't hear from them, you don't see from them. Lenders tell me they're getting mad because they can't even get ahold of people. Even they try to save them. Those people are flaky. And I'm like, there you go, right? And so it's about being responsive, taking decisive action and moving forward, even if it's the tough decision too. Like, that's the other thing too. Not everything is easy. Not everything is roses. Sometimes you have to make a very tough decision and get everyone bought in and you can move forward.
- [31:31]
A
What does syndication mean in your world?
- [31:34]
B
Syndication, the way I explain it to people, right. You know, it's just, it's pulling money together. So the example, Jeff, if you wanted to, you know, let's say you had $100,000 to invest, you can go buy a $400,000 house, roughly.
- [31:46]
C
Right.
- [31:46]
B
And that $400,000 house, maybe it rents for, you know, 2 to 3K, and that's it. So if you have a tenant there, it's renting. If they're not, they're, they're gone. But if you have $100,000 to invest and you go find 19 other friends, well, combined, you all have $2 million to invest. $2 million can get you an $8 million complex. An $8 million complex, keep it simple. Roughly 80 units. Well, now you have scale. You can have a full time person that runs that property, Right. Someone that is there to do full time maintenance. Right. Because every 100 units usually have one in the office, one out the office, and you don't have the situation of the tenant's not there and the whole thing is making zero.
- [32:25]
C
Right.
- [32:25]
B
You have economies of scale and you could do more interesting things. And so syndication is just that, pulling together people's money and, you know, to accomplish a common goal.
- [32:37]
A
So is that, are you looking for individual investors? Do you work with family offices? You take any institutional money?
- [32:44]
B
Yeah, so for us, it's really all the above.
- [32:46]
C
Right.
- [32:46]
B
So we structured the deal effectively. I mean, the way we've built most of the company is just high net worth individuals. And as we've grown, we've had some wealth funds that'll come in for some of the money. You know, we'll have some institution that maybe comes in for a prep component, depending on the deal size, deal structure, what's going on. And for us, we, our job is to structure the deal, disclose that to investors and say, here's the risk appetite, here's what it looks like, here's why this is good or not good.
- [33:12]
C
Right.
- [33:12]
B
Each component of it and execute the project to get going forward.
- [33:17]
A
So we're talking mostly multifamily.
- [33:20]
B
Yes, absolutely. So multifamily from value add and we've seen some ground up as well.
- [33:25]
A
What's your investment horizon? How long do you hold a deal?
- [33:28]
B
Five to seven years.
- [33:30]
A
Okay.
- [33:30]
B
And again, we've. That's what we tell people going in. But we've also made exits in two and three years. And so it's funny, there's a deal that we bought. The plan was a six year hold. Two years into it, we got an unsolicited offer, really good offer. We ended up making that sell, you know, two and a half X ing people's money in that two years. And then two years after that, the lender, which we have a good relationship with, came to us and said, hey, these guys don't know what they're doing. We're going to foreclose on them. Do you guys want to buy it from us at the note? And so we couldn't quite get a deal done there. They were asking for too much. But ultimately they were like, hey, do you at least want to manage it for us? Right. Our manager company does third party as well. So that was nice to hear. Right. The lender wanted us to manage that same asset. And you know, I tell people like we're going in, I need people committed. We're not going to, you know, if you need this money in the next seven years, don't invest it. And my job is to make the best exit when it makes sense. So.
- [34:23]
A
How much bad operating do you see out there of multifamily and does that create advantages for you?
- [34:28]
B
Oh, there is so much of it. And that's kind of what's led to just the M and A stuff that we've been thinking about.
- [34:32]
C
Right.
- [34:33]
B
There's a lot. You know the problem with syndication, right. Some of it has a bad rep because ultimately everybody can figure out how to raise a million dollars.
- [34:41]
C
Right.
- [34:41]
B
You know, you can figure it out. It's talking to people, it's that. And most people will buy, buy the deal, hand it to a third party management company and if the deal succeeds, they did a good job. If the deal doesn't succeed, the management company did a poor job.
- [34:56]
C
Right.
- [34:57]
B
That's how it is. And I see that time and time again. And we created our own management company because we used to use third party. We realized there's some good ones out there and there's some really bad ones. Out there and you're at their mercy. So that's why we created our own management company many years ago. And that's why we do third party. We manage for other people because it gives us economies of skills, right? We get to see data and know what's working. And a lot of management companies do a bad job and a lot of syndicators don't understand the numbers. Like they so aloof to it. I still see it. Even deals that we third party manage, like they focus on the wrong things. They're just not understanding what's really operationally happening or what the numbers truly mean, right? Even something as simple as bad debt, right? That's essentially, you know, someone didn't pay their rent, they get evicted. Bad debt. Well, people think that bad debt, you know, they don't realize financials are accrual versus cash. Like there's a huge piece to understand what that actually means operationally. And so there's a lot of bad operators out there. And what we've learned is just, you know, we're pretty good at operating companies, right? There's a whole backbone. And so we've kind of ended up restructuring the company because we have a backbone that supports all of our port codes, right. Whether it be the management company or other things. And you know, you know, as we've kind of gone down that path, we realized operations are hard. Most people don't do it well. Something that we do well, not amazing, right? We still have plenty of room to improve, but that becomes the secret sauce, right? I had a software company I kind of mentioned right after Microsoft had a software company and then got into real estate. Well, that software company, it did well for a couple of years, but once it became time to build a real company where instead of just me and my friend making money, we try to grow it. We failed. And it's because we didn't understand the power of sales and marketing. So, you know, you start to have these components then I call them sales, marketing, hr, it, accounting, legal, all those components have them in house and they support the greater portfolio. And then, you know, that's what's allowed us to kind of innovate, grow the company and really start to go into other forays such as buying businesses where it's a more cash flowing for our investors. And so. So that's maybe a long way to answer your question, but that's kind of the way I think about it. And back to just compensation, right? And getting people bought in. That's why we've restructured the whole company and now we get our leadership equity in the parent company that owns everything else too.
- [37:18]
C
Right.
- [37:18]
B
So they're incentivized for the greater success. Not I'm in this org. I'm in this org. I'm in this org and I'm only, you know, I don't know if you've ever seen that diagram of the tech companies and their org charts, but it's a great diagram and it came from XKCD and it shows you the different companies and how their org charts are.
- [37:36]
C
Right.
- [37:36]
B
So they had Apple, which was Steve Jobs at the center and everybody just reports to Steve Jobs, right? He's just the heart of it. Well then you had Microsoft where you had basically the different orgs, you had Windows, you had office, etc. And they all had guns pointing at each other and that's exactly how it was working there.
- [37:51]
C
Right.
- [37:52]
B
And then you had you know, Oracle, which is kind of funny because they have a huge legal department and a tiny development farm because they sue everybody. So you know, just kind of thinking through that, how do I create an environment where we're not that right, where we have everybody aligned for the same interests. And so that's kind of been just some of the thought process there.
- [38:08]
A
So did you go through a consolidation then up into a Holdco?
- [38:13]
B
Ish. I mean we've always kind of had the Holdco for that. And then there's just kind of the bigger business units and getting the leadership equity in the parent company and just cleaning it all up. And before everything was just registered me, my partner's name versus now you can have two parts to it and just all of the structuring or in house counsel just cleaned it all up and got well look.
- [38:32]
A
So you know you go through a consolidation for a number of reasons. Number one, you want to be back a couple of years from any sort of a recapitalization or a sale of the company so that you can have all of the small issues, risks, you know, cleaned up and you know, you're basically in a sale ready form. You're not going to want a private equity firm is not going to want to go through and you know, put six different little companies all together. That would make the diligence very difficult. So you're doing that from a pre, potentially pre exit. The other thing is, is it allows you to simplify your lending, your banking or your capitalization strategies. Right. Because now again you've got all these different LLC and companies or whatever the structure is and the bank's trying to look or A lender or a know capacity, they're trying to look at it and say, all right, well what do I need to, what do I need to tie down here? So now they have one person that they can, they can work with and then that also creates the opportunity for accretive acquisitions. Right. Because now you've got real, you've got real equity. And whether that might be a key person or bringing in a new company, you might do a tuck in acquisition of some sort of a, who knows what would, you know, some sort of a company that's going to service, you know, that's going to be complemented to all your other businesses. So I think a lot of times I've seen it where you end up with this kind of village of different independent companies that all kind of bill each other back and forth and do some cost allocations. But you know, at some point you've got to, you know, if the company is going to grow at consolidation is usually appropriate.
- [40:08]
C
Yeah.
- [40:08]
B
And I tell people, I mean both bankers and private equity guys that could buy you, they're looking to check boxes help them. Check boxes not have to solve problems. There's a big difference between those two concepts.
- [40:21]
A
When you acquire a new asset, what are some of the first things that you look at to either diversify or manage risk?
- [40:32]
B
So apartment assets specifically? Yeah, I mean it's with apartments it's about providing, you know, just good, affordable quality housing. And a lot of times, especially if a deal is under sell, like you have to understand why it's for sale. But a lot of times there's a reason it's for sale. Sometimes it's, you know, it's reached the end of the cycle, it's been operated well, etc. But a lot of times it's been starved for cash the past six months. And so there's a quality of housing component there to give. And so for us, I mean, you know, and we, it's funny, we have a new thing we're doing now which is deals that we, certain deals are starting to actually use our brand and rebranding them to us.
- [41:11]
C
Right.
- [41:11]
B
So that way as we grow, tenants will know that they're going to get a certain quality of housing, right. And we'll take care of it. And it's got the parent brand with it. And so for us, a lot of times it's as simple as just announcing yourself, starting to just really create a good environment at the office to get people to come in.
- [41:28]
C
Right.
- [41:28]
B
And that's simple things like, you know, whether it's a food truck. You know, really, we focus a lot on just doing tenant retail events every single month. I want to know what are my properties doing, who's doing it, you know, and spending the money, which we allocate. We want to do that.
- [41:41]
C
Right.
- [41:41]
B
To get tenants to want to come in. Because tenants coming in will tell you who the problematic tenants are. They'll want a more likely to renew.
- [41:48]
C
Right.
- [41:49]
B
They feel like they're getting value too.
- [41:51]
C
Right.
- [41:51]
B
They're seeing. They're being heard, etc. And so for us, a lot of times it's just digging in and it's. You know, we used to be a lot more aggressive. Aggressive about making changes quickly in terms of like, let's go in, let's go upgrade 20 units. And right now it's about just let the thing sizzle a little bit.
- [42:08]
C
Right.
- [42:08]
B
Just let it sizzle, but just clean it up around the edges and sizzle in the pan. Yeah. And so for all marinate. Exactly. And so just getting the right staff out there and just getting a real feel to the property. Because again, you know, whenever we underwrote this thing, it was probably six months ago.
- [42:26]
C
Right.
- [42:27]
B
The market could have changed the location, could have changed the asset condition, could have changed. Things happen. And what you don't want to do is go execute the plan we said six months ago, wholeheartedly, versus just let it. Let the dust settle.
- [42:39]
C
Right.
- [42:39]
B
Give it 60 days to just let it marinate, then go in and start to be strategic. And so a lot of our style has been more of that.
- [42:48]
A
Yeah. So I would think, I mean, if it were me, and I'm not experienced in the space, I would look for, like, red flag tenants, maybe people, you know, somebody puts in like five different requests for maintenance or I want my washing machine replaced or, you know, stuff like that. Just, you know, you know, leaks and the leaks in the unit or delinquencies, payments, late payments, things like that. And then, and then, and then, and then I would look at, you know, is there. Are there any water mold issues that seem to be recurring in a certain, you know, any. Any kind of emergency maintenance that might have been deferred for the. For the purpose of increasing cash flow going into a deal.
- [43:29]
B
But yeah, and a lot of that we see during due diligence. So we do that 90 days prior. During due diligence. We'll go through the work orders, just start to really catalog and understand what all is happening there. And it's just, you know, for us, it's just the other thing I Didn't really mention is. And this is why it's important. Just let it sizzle. Usually whenever a deal's going to sell, it just stops getting operated.
- [43:50]
C
Right.
- [43:50]
A
Yeah.
- [43:51]
B
And you know where the staff is just kind of in just everything becomes maintenance mode. They stop spending money. The staff is not evicting people, all these things. And so you step in day one and there's a complete reset and you need to give yourself that 60 days of breathing just to get a handle on it. So you really know where bottom is, Right. Versus you think you're here and then you end up having another 5% drop in occupancy over the next 60 days because of this, this, this. Well, now you're actually here and what do I need to do to actually get moving? So there's very different. Whenever you buy a deal and it's 98% occupied and it's just being operated, you know, very, very well and the options you have are very limited actually in those scenarios to make it better versus if that deal ends up at closing being 90% occupied, well, very different decision tree. They need to go down and operate.
- [44:39]
A
So with your tech forward approach, have you identified any killer KPIs that maybe the industry as a whole doesn't pay attention to?
- [44:51]
B
You know, there's not any secret. Like in the end, property management is just boring. It's really, it's realistic. It's also the hardest business I've operated. We've been in a lot of different businesses. Property management is tough. And what it is is very simple. Like the fundamentals is leasing, right. It's, it's a delinquency and tracking that and all things around that. And it's about just quality of service. Like it boils down to those three. And so what I found from us using third party, from us managing for ourselves, manage for other people, is that there's no secret to it. Where it's broken is actually the next step about. It's not the KPI. You asked the wrong question. The KPI, everybody knows the KPI. There's only 10 KPIs out there, 20 KPIs that matter.
- [45:33]
C
Right.
- [45:34]
B
It's about what do you do about them. That's where it's really broken. And what I mean by that is everybody understands renewals, everybody understands lease expirations. Well, it's very simple to reason that If I have 50 expirations next month and I've only renewed one of them, most likely I have 40 people that might be leaving soon and my occupancy is going to drop really far. Very simple. Nothing complicated about that. But then about how do you show people the train is about to hit you well in advance and how do you act on that?
- [46:04]
C
Right.
- [46:04]
B
And so it's not about the KPIs so much, it's about is everybody sipping the same Kool Aid. And because you have 20 different satellite offices, 30 different satellite offices, a lot of times you're not. And so how do you create more visibility around those things and more excitement around those things. Right. And create the right incentive structure? And so Everybody knows the KPIs. It's all or everybody. Most people have rented in their life, they understand the concepts. Yeah, it's the next level that I think is really broken in property management. And this is where it goes back to. You know, there's kind of two. What I'm seeing is new school versus old school property management. And literally the people you hire almost fit into one of those two buckets. And so for us, we're really trying to think about new school property management. Right. Where people are really, you know, drilling into forward looking decisions. People are trying to get ahead of things. And you know, even the managers that want to do tenant retention events versus the ones that don't really though, new school versus old school.
- [47:00]
C
Right.
- [47:00]
B
And so that's where I think it's broken. There's a lot of people in that old school world, right. Where it seemed like, you know, they could just jump companies every couple of years, never really doing anything well.
- [47:11]
C
Right.
- [47:11]
B
Versus people that take ownership and drive back to what we kind of kicked off the conversation with.
- [47:16]
A
Yeah. So if there's like a power KPI and if it is not either ideal or optimum, then there's going to be levers you can pull and each of those. So. All right, well look, we, we've got a potential vacancy period coming. We got, we got non renewals coming. Here's three levers that we can do 90 days out, 60 days out to try to get these people to renew if we want them, or to get new showings in or whatever it is. And then for each of the levers that you're going to pull, you've got to give the people that are executing resources. Okay. If you're going to say, well, why don't you launch a program to see if you can create an incentive for, for them to either stay or whatever, well then what is the program inside of that? So to me it's about, it's about, all right, what are the, what is the vital few things that if I want to run an ideal or fully optimized business. What are the, what are the. What are the 22 power KPIs for each of them? What are the three levers that I can pull if I have a problem with sales conversion, for example? Well, you can do training, and here's the training that you can do. You can. There. You can use a technology to, to put it on your sales people to record their calls and do immediate AI coaching as they're doing their sales. Right. So because you're probably not doing that right now, if your conversions are low, you can do. There's, there's, there's a handful of things that you can do to improve that KPI, but then you got to give people the resources to do it. And, you know, that's kind of our approach. It's, you know, it's called performance coaching. And at the end of the day, it's just, it's, you know, there is, there is an ideal for every KPI. Like, it's. If it's that we're good, if all the KPIs are good, we're great. But it's never that way. There's always going to be some that are in the red and there's always going to be something because things just. The universe expands and so do our businesses. And, you know, it not in. Not in an orderly fashion.
- [49:10]
B
Right. So it's just like now there's always. You solve one thing. It's a little whack a movie. He solved this one another bad. And you kind of have to play that game. And, you know, and I tell people, ideas are dime a dozen. Like, I could tell you, Jeff, right now that there's, you know, 100 tons of gold at the bottom of the Marinus Trench. That idea is not very valuable to you because it's about how do you execute that?
- [49:29]
C
Right.
- [49:29]
B
It's all in the execution.
- [49:31]
A
No, I would, I would go in.
- [49:32]
B
The Titan sub, not that one. You got to go build out of E2 of that thing.
- [49:38]
A
Yeah. Oh, that's. Yeah, that's. That's not available to us. All right, awesome. So when, when do you know when it's time to cut bait on a property? Is there, is there ever a time you own an asset, you're three to four years in, it's not to the end of your investment horizon, but something's happened into the marketplace. Have you ever been in the situation and said, you know, we're really need to consider getting out of this deal?
- [50:09]
B
Yeah, I mean, the numbers speak for themselves, Jeff. That's what's beautiful about this business. It's all very. There's not a, there's not a lot of hopium, right? Like you can't, you know, in a business like a traditional business, like I can go invent a better shirt, I can go sell more shirts. I could do these things. In the multifamily real estate business, you know, the market is. The market, meaning your capital stack is a very fixed, understood thing. Your rent growths are very fixed understood thing, right? Austin is sucking wind right now. Why? Because rents have fallen. Doesn't matter who you are, you could be the institutional REITs, you could be the value add. Everybody has fallen 20, 30% in rents. And unfortunately, you know, in multifamily real estate, your margin is like 5%. So imagine what that does, right? And so the numbers speak for themselves. And so the Hopium you have is, hey, in the next 10 years, the next five years, this market's going to get better, but there is no switch to solve it tomorrow. And so because of that, you know, if you're losing money month over month, you get to a point where you have to make an exit, right? And you're going to lose some investor money, whatever. You have to consider all these factors or you feed it yourself, right? And so in this business, it's not, you know, there's not. The answer almost becomes self evident now. Where it becomes more interesting actually is whenever I have the choice to sell or hold the deal, right? Those are the ones that, you know, what I've learned is there are some deals that are just, they just operate themselves like no issues. You know, there's a couple of these deals that just always stay occupied, always have really low delinquency. All of these great things in my head, I'm like, you know, why sell those deals? Like, those are clearly in the right location. The right. Let's just refinance and hold those deals and we can sell, don't get me wrong, we can sell and make an exit. And we literally have two of those. One of them refi earlier this year, another one we refinancing in October. Those are the deals that I'm like, you know what, let's just hold those deals. Let's keep them for another 10 years. Let's refi and keep going. And so it's ultimately more. I really look at it about how much work goes into the deal post stabilization, right? And if they're high friction deals, for whatever reason, maybe we should Move on. Right. Let's make that exit. And we've done a lot of those, several of our Atlanta deals early on in our career. Those are tired. Those are hard deals. We made a lot of money on those. And I'm glad we exited those because those are just really hard deals for a lot of different reasons.
- [52:34]
C
Right.
- [52:34]
B
And versus the other deals that we bought later on Atlanta. Those are just kind of down the middle, very vanilla, very simple deals. And I think to answer that question, it really depends on the company and where they are in their life cycle too.
- [52:46]
C
Right.
- [52:47]
B
Early on, you have to go grind it out, go prove it out, go build a tracker, go do these things. And you're going to go sign up for things that you may not sign up for later on in your career.
- [52:56]
A
Yeah, I have a billionaire friend, and he just does investments in things. And so if we're talking about a deal and, you know, we'll, you know, massage it around, talk about the different angles on the deal, whatever, but it always comes down to this. Is this the easiest, easiest dollar that we can make? At the end of the day, you can, you can always make dollars. Right. But it's like, what's the friction? What's the risk? What's the time and energy is, you know, sometimes just letting a 3% return roll versus, you know, 10xing the work for 5% is just like. No, that, that's, that's, that's mailbox money. Just leave it alone.
- [53:34]
C
Right?
- [53:35]
B
Yeah. So there's risk adjusted returns, which most people don't understand. And then there's also time adjusted returns that most people don't understand. And it's both those things, Right. Like, I can present you two deals. One's a 20% IRR, one's a 10% IRR. Logically, the 20% is much better, but the 20% might need to have these 40 things go, right? And yes, it pencils to a 20% versus the 10% just down the middle. Very low risk. And even where I'm at in my life, I'm more of like, you know what? I'd take the 10% coupon, quote, unquote, versus the 20% IRS, you know, and, you know, and I have this example. It's funny, I have a friend from college who, you know, had invested any one of our projects, and the one project he invested, it was the highest irr. But it's also significant risk. And I did. I'm like, dude, like, you know, at least invested the less riskier stuff. And I kind of gave him here's the things to think about and here's what it's gone. But I always thought it was funny how, you know, he's not as financially savvy and it's more about numbers.
- [54:33]
C
Right.
- [54:33]
B
With him versus understanding the risk adjusted part of it. And then similarly, there's a time component, right. If you're the operator, two different deals, maybe pencil in the same. But you have to understand the time investment that's going to take and is that worth the time and the focus and the distraction of other opportunities that are out there?
- [54:53]
A
I'm going to ask you to speak directly to our audience and by our audience, I'd say, well, we have a lot of people that are looking at becoming business owners, but let's just say that you're a two to $5 million business owner. You get paid a great salary, all your cars, expenses, you know, you're taking all the owner benefits that you're going to have. If you own a business 100%, maybe you're making 10 to 12 or 15% on the bottom line of that 2 to 5 million. So you got a nice lifestyle, you've got, you got your, that's your, you, you, you, you have, it's a lifestyle business. You are generating some extra cash flow. Of course, then you got to pay tax and all of that. How would you, with all the businesses that you've been in and if somebody wanted to say, you know, if you were, you were going to say, I want you to be a wealth builder and I'm going to give you this wealth builder program for somebody like you, what would be in it?
- [55:48]
B
So let me just make sure I understand it. So if I was going to help business owners start to build wealth, what would it be?
- [55:53]
A
Yeah, I'm a $2 to $5 million business owner. I'm making a half a million bucks maybe on the bottom line.
- [55:58]
B
Yeah.
- [55:59]
A
A couple hundred grand. What, what, what, what would that look like for you?
- [56:02]
B
Yeah, for me, you know, it's, it's a couple different things. So there's, first of all, what do I, how do you build money with the money you have?
- [56:10]
C
Right.
- [56:10]
B
And it's understanding the differences about, you know, just even not just, hey, here's what real estate investing looks like, but understanding what diversification looks like, that's another thing people don't understand. Obviously, I'm heavy in real estate and when the market goes south like it's been the past three months.
- [56:25]
C
Right.
- [56:25]
B
It doesn't exude confidence. Right. It's tough. You have to be able to ride it. Because real estate is very cyclical. And you know, one, there's a father and son, I got invited to a private event by one of the big lenders and they find a kind of top clients. And there's a father and son have been doing this for 40 years. And he said a phrase that I love, which is, those that are rich sell, those that are wealthy hold.
- [56:45]
C
Right.
- [56:46]
B
And so people need to understand cycles and whatever it is they're doing, whether it's real estate or other factors. And so, you know, I think the first thing I tell people is because especially a lot of business owners, they're not financially savvy, right. There's a difference between being good at running a business and making investments. And I would tell them, if it's too good to be true, it's too good to be true.
- [57:08]
C
Right?
- [57:09]
B
Like just, you know, there's a lot of noise out there and you know, go pick some index funds and just park it. Those are the things you just dump money and forget it.
- [57:17]
C
Right.
- [57:18]
B
And then just really think about diversification and slow roll things. Right. A lot of those business owners that I've met, because, you know, we're on the other side of it, we're looking at buying their businesses, right? Yeah. And some of them have just stumbled into wealth.
- [57:30]
C
Right.
- [57:30]
B
No offense to any of them.
- [57:31]
C
Right.
- [57:32]
B
And you know, they bought the really cool car because they could afford it.
- [57:35]
C
Right.
- [57:35]
B
And you know, but they're not really thinking about the financial implications down the road of each of these decisions and, or like what happens if the business does go bad.
- [57:45]
C
Right.
- [57:45]
B
And I think those are the kinds of things that I would really stress to people. It's, hey, times are good now. Times are not always good. And so how do you start to plan for that, get ahead of that? If you have debt now, should you go buy that Porsche or maybe pay down your debt on the business? So if the market tips you're not all of a sudden trying to scramble, how do you pay your debt? There's all these kind of factors to really stress to people on. What do you do with the money you're making?
- [58:07]
C
Right.
- [58:08]
B
And how do you just kind of preserve that? And I tell people real estate is more about wealth preservation than it is about wealth creation.
- [58:14]
C
Right.
- [58:15]
B
Versus on the M and A side, buying businesses, those are more high cash flow, those are more about wealth creation. And so really people just need to get educated on those things and come as a business owner saying, yes, I've been successful business, but managing money is a different Business. And I don't know anything about that business. I had a pest control company, right. I'm not going to go, Jeff, and tell you, here's how you go. Have a great pool man. You know, pool cleaning company, they're very different businesses. And so I think business owners need to understand that, that managing money is a business in itself. There's a whole ecosystem around that and all the things that that happens now, there's a lot of predatorial stuff, so you have to be really cautious of that. But again, it's a business, so don't think you're an expert in that. And the other side of it that I would coach them on is also how do you better set up your business to be more scalable, to be more, you know, attractive for a buyer as well.
- [59:07]
C
Right?
- [59:07]
B
Like that, like you said, that takes work, right. The problems you're dealing with today are decisions you made three years ago. And so similarly in your business, if you want to sell it today, you got to get ahead of it three years ago, Right, right. And so really start to think about what do you need to do to operationalize the business to get your books in order to structure it more effectively. And you're ambitious. If you want to grow the business, you have to start to make steps towards that. So I think those are the two lenses I would kind of stress to people. It's just, hey, managing money is a full time business. So don't think you're, you know, if you just want to do yourself great, go buy index funds and go maybe pick some REITs and call it a day, right? Where it's somebody expert is actually dealing with the problems. But if you want to go be a stock picker and you want to go and you know, direct investment, certain things like that requires work and energy, right? Like a lot of investors of our investors invest with us. Not because they went in diligence the whole deal and did everything. They know everything about the market. They trust us. That's our job.
- [60:03]
C
Right?
- [60:03]
B
And you know, either find somebody you trust and I mean trust, you really need to trust, right? Like it's easy to be on a podcast and get hurt. You know, people hear me this or that and now all of a sudden they think I'm trusting. No, go get to know who you're investing with.
- [60:16]
C
Right?
- [60:17]
B
Because in the end of the day, if you're investing $100,000, that's your hard earned money and that's a lot of money. People still forget that, like that's still a big chunk of money for most people in the country. Right. Make sure you, you respect your money enough to go actually diligently. Don't just fill out docs and just hand off and disappear. I see that so often.
- [60:36]
C
Right.
- [60:36]
B
You know, and with other groups that people come back and they're like, yeah, I just got burned with this thing. And so do the homework or let someone do the homework for you.
- [60:44]
C
Right.
- [60:45]
B
And you know, get your house in order on the other side of it.
- [60:48]
A
So any words of wisdom around tax and how much you think about tax as you're doing your deals?
- [60:55]
B
Man, I think about it so much more. I mean, you know, for our deals, it's great. As a real estate investor, I mean, I have losses upon losses, right. And our savvy investors are the ones that invest for tax reasons almost first.
- [61:09]
A
Right.
- [61:11]
B
Like my, it's funny, my most wealthy investors always ask me about, tell me about preservation of wealth first before you tell me about creation. Like, tell me about why we won't lose money on this, lose our money on this deal. Not about creating money.
- [61:21]
C
Right.
- [61:22]
B
But if they just, let's say you parked it in a deal and it didn't make money, but you got your money out, but you probably saved 20% of taxes. Right. There's some real value. Especially now with the, the, the new tax bill that just is going to affect, it's bringing back the 100% bonus, depreciation. It's huge.
- [61:38]
C
Right.
- [61:38]
B
And so I think about taxes often for that side of things and then even me personally starting to be a lot more strategic and, you know, getting ahead of some of these things. And I know I have significant losses, but I won't have that for life. Right. So what happens in 10 years from now? Or what are the different structures and things to do and you know, and understanding DSTs and how powerful those can be.
- [61:58]
C
Right.
- [61:58]
B
There's all these different toys out there. And you know, I used to think people were weird whenever they geek out about tax structures and things, but now the more, the older I get, the more I'm like, man, it's really fast, fascinating, and it's really, really powerful.
- [62:12]
A
Yeah. I think understanding tax long term is, is one of the first and most important steps in creating wealth.
- [62:19]
B
Well, and it takes, you know, and it takes years of planning, too. That's the other thing for listeners just to like, do not go sell your business tomorrow if you've done nothing to prepare for it today. Right?
- [62:27]
A
That's right.
- [62:28]
B
Get ahead of it. Go talk to somebody. Go talk to Jeff. Go talk to me, go talk to somebody that can at least steer you in the right direction, if somebody who could maybe spend the time to dig in with you.
- [62:37]
A
So, awesome. Farris, this has been awesome. I've got a curveball, and then I got a fastball straight down the middle for you. But before we get to it, why don't you tell people how to get in touch with you if they're interested in doing business with you?
- [62:48]
B
Yeah, absolutely. So, disruptequity.com my email is Ferris F E R a s@disruptequity.com or find me on Facebook, Instagram, whatever. So try to make yourself pretty. Pretty accessible.
- [63:00]
C
Yep.
- [63:00]
A
Fellow E R A s Ferris with Disrupt Equity for everybody out there, just looking for them. Okay. And here is the curveball. Okay. Do you have a pet?
- [63:11]
B
Do I have a pet? No pets now. I had fish tanks before, so I had to salt. I got a saltwater fish tank for a while, so.
- [63:17]
A
All right, well, okay.
- [63:19]
B
My wife is definitely scared of most animals, so that's. That's the pet reason there.
- [63:23]
A
All right, well, look, gun to your head, your fish tank being held out the window of a tall building. You have to start a business in the next 30 days, and it can't be anything that you're currently active in. What would you do and where do you see the opportunity in the market?
- [63:39]
B
Started in 30 days, and I have to make money quickly or.
- [63:42]
A
No, just like, it's more of a question of, you know, sitting where you're sitting in the marketplace. You know, where do you see an opportunity that is underserved?
- [63:53]
B
So the opportunity I see underserved is the same one that we're actively growing into, which is just, there's a lot of wealth out there that's retiring, Right? Baby boomers are retiring, and that's a fact. That's not, you know, hope. And so what are the things that. That allows for that. That needs to happen to that? Some people think about it as well, Maybe I go create a retirement home or a nursing home. Yeah. That requires relationships, that requires money, that requires expertise. There's a lot of that. But maybe the inverse is really, hey, how do I find good businesses out there and pick them up, buy them, right? Find that baby boomer that likes me. Trust me. And I tell people, like, I mean, there's real opportunity in going and just finding an old person to say, hey, how do I come work for you for six months? Build up that relationship and start from the inside out.
- [64:38]
C
Right?
- [64:39]
B
And if you have those kinds of opportunities, those are valuable. And you know, I'll give you a real example. There's a business that we're looking at that we were going to buy collapsed, but now we're picking it up again. And the, the owner loves us, right? But he originally tried to sell it to one of, one of the people on his team. So that person got first bite at the apple and that person couldn't put the rest of the structure together. So it didn't work out. But I want to be in that person's shoes, right? Where, you know, I have a, what is that eight figure company that an owner is going to let me buy and structure something very favorable, resident, you know. And so I think the answer, really picking anything, you know, it still takes an investment of time, right? But getting out there, finding one, two, one of those businesses, just go all in and find a way to go tell that person, hey, Jeff, you're running your businesses. How about this? My goal is to come in, I'll prove myself, give me a fair salary, but I want to make you an absentee owner in a year from now. Like, go prove that to Jeff. And then once you do that, you have now added a lot of value where you have negotiation power, right, with Jeff and say, Jeff, now that you're absolutely owner, I want a way to buy half this business and you continue to write it. You know me, but like, those are that, you know, and that's how you make nine, you know, not nine figures, sorry, eight figures. That's how you make seven figures of money, right? I'm not talking about the $100,000 fees. It's those kind of situations where you get in, you find the right structure, you find the right owner, and you go do something very, very, you know, impressive. So awesome.
- [66:12]
A
Great answer. Okay, fastball right down the middle. Last question of the day. If you had one sentence to make an impact in somebody's life, what would that be?
- [66:22]
B
Get you done, I guess.
- [66:24]
A
Get you done.
- [66:25]
B
Yeah, I mean, see, that's the, that's the, that's the curveball right there. You know, I tell people, it's just, it's exactly what we kind of alluded to earlier is too many people spend too much time and analyzing. Learn enough, hop in and figure the rest out.
- [66:46]
A
Fair enough. Ferris Musa, thank you so much for being on the Unemployable podcast today.
- [66:52]
B
You bet. Thanks for having me, Jeff. Appreciate it.
- [66:54]
A
Yeah. Awesome. This has been great. I'm Jeff Duden and we have been on Unemployable with Jeff Duden. Thanks for listening.